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ESG Reporting: “SMEs are discovering a new world”

Apr. 21 2023

The Corporate Sustainability Reporting Directive (CSRD) came into force in January 2023 in the European Union and governs non-financial accounting. Marc Boissonnet, Executive Vice-President of Bureau Veritas, explains the new obligation for companies to publish a sustainability report.

What does the CSRD change for corporate sustainability reporting, which will apply in January 2025?

Firstly, it standardizes companies' non-financial reporting. Today, 11,000 companies in Europe are required to report on non-financial issues that fall within the environment, social and governance (ESG) spectrum. However, there are no themes or indicators imposed on all them, and from one year to the next companies can choose to hide or declare information. This will no longer be possible because the directive defines precisely what each company must report – similarly to the way financial reporting works already. They will have to indicate not only whether the environment can have an impact on their activity and finances, known as financial materiality, but also how they themselves impact the environment, which we call impact materiality. The CSRD introduces this dual materiality principle. The current directive, launched in 2014, focuses only on simple materiality.

The second major change is the gradual application of this standard to five times as many companies as before. The standard will eventually apply to approximately 55,000 companies, including foreign companies based in Europe, harmonizing reporting across actors.

Are there new obligations in terms of results?

Yes, it is no longer simply a matter of declaring CO2 emissions and energy consumption figures. Players must now also present a plan to reduce emissions in line with the Paris Agreement objectives. Furthermore, sustainability auditors will need to verify that these plans are appropriate. Previously, sustainability reporting was considered a subpart of finance, audited by auditing companies, but now it will have much stronger technical content. This directive is far from insignificant. It both motivates and commits companies to act in a virtuous way – governments cannot drive the ecological transition alone.

Are federations concerned about the pressure of environmental standards and the risk of losing competitiveness?

Reporting takes time, but it is a necessary step. How can we properly engage in the environmental transition if nothing is measured? Yes, it has a cost, but it is unavoidable. Plus, when companies include the climate in their sustainability reporting, it enables them to consider whether reporting is appropriate for other environmental factors, such as biodiversity, the circular economy and water pollution. And auditors will then check and advise. It is a lot of work for big groups, but they know how to do it. The focus should be on SMEs. They are discovering a new world, and for the most part, they have never done ESG reporting. Large companies must help their suppliers to prepare.

Is this directive the same as the “Duty of Care” obligation for companies, which is currently being debated by European institutions?

No. For the CSRD, the die has been cast – it was voted in following negotiations in trialogues conducted in December 2022. The legislative work is over and the ball is in the court of the Member States, which must implement it into their national legislation by the end of 2023. Everyone is preparing to use this new directive for their reporting.

This interview was conducted by L'Opinion and is available here (in French).